Slow progress in unbundling of the local loop: Commission publishes report on sector enquiry

Access to the last mile of telephone lines into European homes or, as specialists say, the unbundling of the local loop (ULL), which is essential to develop competition for the benefit of consumers and put broadband Internet within the reach of citizens, has so far been very unsatisfactory, shows a study by law firm Squire, Sanders and Dempsey. The study, prepared for the Commission and the EFTA Surveillance Authority and published on the Commission's website, reflects the views of newcomers to the market which are dependent on the incumbent operators' networks to reach consumers. They are very much in line witgh the findings of the Seventh Iplementation Report(1) The unbundling or access to the local loop on fair terms was required by a Council Regulation of December 2000. The Commission invites the EU Member States, national competition and regulatory authorities and dominant players to reflect on the results of this study and to play their part to ensure that the objectives of unbundling are met. In the meantime, the Commission, which has already launched infringement proceedings against some Member States in December, may take action against those companies which abuse their dominant position.

The Commission makes available on its website [http://ec.europa.eu/dgs/competition/index_en.htm] the non-confidential version of an EEA-wide Study prepared by consultant law firm Squire, Sanders and Dempsey (SSD) on local loop unbundling, on the basis of the material gathered by the Commission and the EFTA Surveillance Authority in the framework of the authorities' respective ongoing parallel sector enquiries on local loop unbundling. The Study consists of an overall report summarizing the main findings and containing the legal analysis by SSD, and of country reports dealing with the situation as perceived by alternative telecom operators in each individual EEA State.

The aim of the Commission is now to receive comments on the report from all interested parties. Comments can be sent to comp-local-loop@ec.europa.euuntil April 30th. A public hearing will be organised before summer to discuss the findings of the report and the comments received.

The report concludes that the new entrants seeking to rent copper lines from incumbents to deploy their own services (in particular broadband services) to end-users are confronted with two sets of problems: tariff and cost related problems inherent to the unsatisfactory economic conditions of unbundling throughout Europe; and behavioural problems, reflecting the reluctance of telecom incumbents to open their premises and facilities to their competitors. Especiallly contentious appear to be the conditions of collocation (see "Background" section of this press release) and the related facilities. New entrants blame high rental fees, the necessity to build separate rooms to accommodate their equipment, high fees for escorted access to the incumbents'premises, etc. The combination of expensive collocation conditions and high one-off fees (for activation / deactivation of unbundled lines) has a clear economic translation and has led a number of operators to turn away from the market or leave aside the residential segment altogether. Many new entrants also allege that they are confronted with price squeezes. The consultant takes the view that most of the problems reported by new entrants reflect possible infringements of competition law.

The Commission will continue to actively monitor the unbundling process, which it deems essential to ensure the development of competition on the local access market, especially with a view to the widespread deployment of broadband services in Europe. It will recommend that measures of redress be taken at the national level, in order to remove the most conspicuous obstacles for unbundling, in particular those which create artificial economic deterrents and entry barriers to access seekers. The Commission may take action against the former monopolists whose behaviour in the context of local loop unbundling can be equated with an abuse of dominant position.

Infringement proceedings were launched against a number of Member States last December, with regard to the implementation of the unbundling regulation. Several competition cases related to access to the local loop or broadband Internet access are underway. The Commission is committed to further ensure the fairness of the unbundling process.

Background

Unbundling of the local loop, either in the form of full unbundling or of shared access, was mandated by a European Regulation of December 2000 and subsquently extended to the whole EEA area.

As competition law applies irrespective of the regulatory tool, the Commission and the EFTA Surveillance Authority decided in July 1999, in the framework of their respective competition powers, to launch a sector enquiry on local loop unbundling.

Collocation basically consists of the rental of space (each new entrant needs around 10 square meters to install its equipment) in the local exchanges of the incumbent and the right for the staff of new entrants to access the incumbent's buildings. The Unbundling Regulation gives alternative telecom operators the right to install their own switching and other technical equipment in these premises. Collocation is indispensable to implement local loop unbundling.